Enhance Your Portfolio
The old saying “don’t put all your eggs in one basket”, surely makes a comeback this year. If you’re aiming to build a property fund portfolio, you might want to consider your options.
IFA Hotels & Resorts, listed in the hotels sector of the JSE 18 months ago, is likely to test the most fundamental tenet of property as an asset class; it is a long-term investment in income rather than capital growth. It is the first big property development company to list on the JSE since the 1960s. It is 85%-held by the parent IFA Hotels & Resorts, listed in Kuwait and Dubai, which is in turn 55%-controlled by International Financial Advisors, a listed Kuwaiti giant headed by Jassim Al Bahar.
Demand for Affordable Housing Grows
RBA Housing, an affordable, fully bonded housing developer, hopes to complete 1037 houses this year to cater for the high demand from emerging middle class buyers. RBA Housing specialises in developing properties between R250 000 and R700 000 and has 600 houses under construction in 20 project areas of Johannesburg, Tshwane, the Vaal Triangle and Polokwane. The sizes of these properties vary from 40sq m to 80sq m.
The Banking Association of South Africa estimates that around 132 000 units a year need to be built in the R250 000 – R700 000 price bracket to keep up with demand. The company has enough land available to continue building for the next five years. CEO of RBA Housing, David Wentzel, says the company is hoping to bring a further 1 200 houses to the market next year.
Demand for Cheaper Housing Stays High
The latest house price index shows that residential property continues to slow down, but there is still strong growth at the cheaper end of the market. According to the Absa house price index for June, y/y growth was 14.9% on average.
The average house price on Absa’s books now stands close to R1m, at R924 800. The National Credit Act has an effect on the growth in house prices that could only become visible in a few months’ time.
Rise in house prices slow down as result of rate hikes
The uncertain interest rate environment is contributing to the slowdown in South African house price growth. Nominal house price growth of 14.5% y/y was recorded in the middle segment of the market in July. This is down from the 15% y/y growth recorded in June.
South Africa’s biggest home loan lender, Absa, says that the average price of a house increased to about R932 000. According to Absa Senior Economist, Jacques du Toit, this downward movement in house price growth is due to the uncertain interest rate environment.
Capital Gains Tax – how to figure it out
According to South African legislation, any gains made from a property sold on or after 1 October 2001, will be subject to Capital Gains Tax. It is important to take Capital Gains Tax (CGT) into consideration when deciding to sell a property.
Properties that appreciated in value over the past few years should be considered when deciding to put a price tag on it. For example, a house purchased for R2m that generated a R5m capital gain over a 6 year period is now worth R7m. The first R1.5m gain on a primary residence is exempt from Capital Gains Tax. The net taxable gain on the property is thus R3.5m, of which 25% will be taxable – in this case – R875 000. The tax levied will be at the seller’s marginal tax rate, say for instance 40%, which means that 40% of R875 000 is R350 000, which is the CGT payable.
South African property market settles down
According to David Rogers, MD of Homenet, the difference in asking and selling prices in the property market is back to normal levels. Normal refers to 5% and 10% in most areas. In the middle of last year, the difference between the asking and selling prices were as much as 25% to 30%.
This decrease in the difference between asking and selling prices is good news for home buyers, and home sellers shouldn’t be too concerned either, as this means there is an increase in buyer interest and thus in sales activity.